Turning Points

Precision timing
for all time frames through a 3-dimensional approach to technical
analysis: Cycles - Breadth - P&F and Fibonacci price projections

"By the Law of Periodical Repetition, everything which has
happened once must happen again, and again, and again -- and not capriciously,
but at regular periods, and each thing in its own period, not another's,
and each obeying its own law... The same Nature which delights in periodical
repetition in the sky is the Nature which orders the affairs of the earth.
Let us not underrate the value of that hint." -- Mark Twain

Current Position of the Market

Very Long-term trend - The very-long-term cycles are down and if they
make their lows when expected, the secular bear market which started in October
2007 should continue until about 2014-2015.

Long-term trend - In March 2009, equity markets began a corrective
move in the form of a mini bull market. Many signs point to a continuation
of this trend into 2011 and the surpassing of the April 2010 intermediate top.

SPX: Intermediate trend. The SPX is ready for a short-term pause, after
which it should resume its uptrend.

Analysis of the short-term trend is done on a daily basis with the
help of hourly charts. It is an important adjunct to the analysis of daily
and weekly charts which discusses the course of longer market trends.

Daily
market analysis of the short term trend is reserved for subscribers. If you
would like to sign up for a FREE 4-week trial period of daily comments, please
let me know at ajg@cybertrails.com.

Overview:

The SPX may have reached a short-term top on Friday. If not, it is likely
to do so on Monday. The Point & Figure base which was formed just above
the 1040 low had a count to 1148, plus an extension to 1168. There was also
a Fibonacci projection to 1175. Last Friday, the index made an intra-day high
of 1167.73 before pulling back slightly at the close.

Besides reaching valid price projections -- an action which normally results
in a trend reversal -- there are other factors which support an impending short-term
peak for the SPX in this time frame.

Its daily and hourly indicators both show negative divergence, a condition
which normally leads to a reversal.

It is making what appears to be an ending diagonal pattern which is either
complete, or nearly so.

It should encounter resistance created by the 5/13 top at 1173.57.

The dollar index has reached its reversal point, and gold probably made
a short-term top on Thursday.

The 17-wk and 9-mo cycles should be ending their respective phases near
October 18. This should pressure prices for the next couple of weeks.

When we analyze the charts, we will pin-point the price action which would
confirm a turning point.

This impending reversal is not likely to put an end to the bull market which
started in March 2009, or even to the intermediate trend which began in early
July at 1011. The pull-back should find some good support between 1120 and
1130.

Analysis

Chart Pattern and Momentum

On the Daily Chart of the SPX (below), I have marked the price projections
discussed in Overview. When the index reached its first projection of 1148,
it had a brief pull-back, which was followed by a sideways pattern lasting
a little over a week, before making a move toward the higher projections. The
indicators reached their momentum peaks at the 1148 level and have not been
able to regain it since. Weakness is particularly evident in the breadth oscillator;
all it can do is crawl along the zero line.

The heavy green line is the long-term trend line which starts at the March
2009 low. When it is penetrated to the downside, this will signal the end of
the bull market. As you can see, after the SPX reached 1219.80 at the end of
April, it underwent an intermediate correction which ended at 1011, on 7/1.
Since then, prices have been making a pattern of higher highs and higher lows,
indicating a solid uptrend. The imminent pullback won't even come close to
challenging this uptrend. Neither the weekly nor the monthly indicators (which
are accelerating upward) give any indication that an important top is near.

Some analysts see a potential inverse head & shoulder pattern from May
to September. If so, a pull-back to the neck line should be expected, and the
intermediate move which is underway should continue beyond the 1219 top. I
will make specific projections for the next top at the appropriate time, but
for now, let's go to the Hourly Chart to refine the price projections,
and to discuss what it would take to confirm a near-term reversal.

Very often, in the final stages of a trend, some re-accumulation or re-distribution
levels are formed which confirm the original base count. This time is no exception.
I have indicated on the chart the two levels where confirming patterns have
formed. The counts range from 1170 to 1176. If there is a final thrust on Monday,
these are the levels from which a reversal should be expected.

The hourly indicators are all showing negative divergence. If they turn down
and break their trend lines, we should have the start of a reversal.

The index has moved in a channel which is defined by the brown trend lines.
Just above the lower brown line, there is a green trend line which connects
the 1041 low to the last pull-back at 1132. If that trend line is broken, in
conjunction with a move below the red horizontal line at 1151, we should have
a reversal The reversal should also break the brown channel line, and probably
move through the lower line of the black channel as well.

When we do reverse, I am expecting the pull-back to end at some point between
the two lower red horizontal lines. We'll refine the projection after we have
made the top.

Cycles

The only cycles which concern us at this time are the 9-mo and the 17-wk cycles.
They should both make their lows near 10/18.

Projections

The projections for the top of the rally have been discussed in detail and
need not be reiterated.

Breadth

The NYSE Summation index (courtesy of StockCharts.com) has managed to rise
above its former high. This is a sign that the intermediate trend is not in
danger of ending. However, the RSI has made a second overbought top which is
lower than the first. That constitutes negative divergence and tells us that
a short-term peak in price is near.

The negative divergence that shows in the daily A/D oscillator is far worse!

Market Leaders and Sentiment

The SentimenTrader (courtesy of same) is only mildly negative and the
position of the long-term indicator is not at a level which is indicative of
a significant top.

Gold

Just as there is evidence that equity markets have reached a peak and are
about to correct, there is also evidence that gold is ready to do the same.
In the past week, GLD went parabolic, jumped outside of its rising channel,
and formed an exhaustion gap, very much as it did in early December of last
year -- except on a slightly smaller scale. It has also reached the highest
possible P&F projection for this move. This has created a situation almost
identical to that of early December 2009, and it would be logical to expect
the same sequential move -- i.e. a price decline.

One small difference is that the upper indicator has not yet given a sell
signal, and since the T projection calls for Monday to be the high, there could
be one more attempt at continuing the rally before the decline begins. That
would be consistent with SPX going for its final target on Monday.

Summary

Nothing about the stock market is written in stone. However, with such overwhelming
technical evidence that the SPX is at a short-term peak, it would be unwise
to ignore it.

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The above comments about the financial markets are based purely on what I
consider to be sound technical analysis principles uncompromised by fundamental
considerations. They represent my own opinion and are not meant to be construed
as trading or investment advice, but are offered as an analytical point of
view which might be of interest to those who follow stock market cycles and
technical analysis.